RECENT TAX CHANGES

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1.) Taxation of Private Corporations

https://www.cpacanada.ca/en/members-area/profession-news/2017/july/finance-canada-consultation

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2.) Employer Health Tax

https://www2.gov.bc.ca/gov/content/taxes/employer-health-tax/employer-health-tax-overview

 

3.) Speculation and Vacancy Tax

https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax

 

4.) Disclose Bare Trustee Situation on property transfer tax return

Traditionally bare trusts have been used for tax planning and meeting various business objectives. Often they are used to reduce the overall tax burden that arises from transfer of ownership of real property. Recently the B.C. government has announced new rules requiring property buyers to disclose more information when they make a purchase through a corporation or trust. 

 

Carole James, BC Finance Minister stated on Jul 25, 2018 "Our government has been clear that the days of skirting tax laws and hiding property ownership behind numbered companies and trusts are over. Not only is tax evasion in real estate fundamentally unfair, but it's driving up the cost of housing for people who live and work in our communities”.

 

Effective September 17, 2018, the new property transfer tax return that must be prepared for all property transfers will require additional information:

 

1.) If the settlor(s) or beneficiary(ies) is an individual

• Name

• Date of birth

• Citizenship information

• Contact details

• Tax identification numbers (such as social insurance number)

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2.) If the settlor(s) or beneficiary(ies) is a corporation:

• The legal corporation name as it appears on the incorporation certificate

• The 9-digit business number (BN) assigned by the Canada Revenue Agency

• The mailing address of the corporation

• Information about each director of the corporation.

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PERSONAL TAXES

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Payments for individual taxes are due April 30th each year.  If April 30th falls on a Saturday or Sunday, the deadline is extended to the next business day. Any unpaid amounts owing are charged interest effective May 1st at the prescribed interest rates set by the Canada Revenue Agency. Late-filing penalties for returns not filed on time and owing tax are subject to a penalty of 5% of the balance owing plus 1% on the balance owing for each month the return is late.   If you file a late return and are expecting a refund, there are no penalties or interest deemed on the late return.  Penalties for repeatedly filing late returns with taxes owing can result in a more severe penalty of 10% (both federally and provincially) of the amount unreported.

 

Capital Gains and Capital Losses

Many people are aware that they have capital gains or capital losses when they sell capital property.  However, there are cases when capital property is deemed to be disposed with no sale actually taking place.  Here are some examples, obtained from Canada Revenue Agency website, where they deem capital property to be disposed and is to be reported on the individuals’ tax return:

 

• When one property is exchanged for another

• When you give property (other than cash) as a gift

• Shares or other securities are converted

• Settling or cancelling a debt owed to the individual

• Transferring property to a trust

• Property is expropriated

• Property is stolen

• Property is destroyed

• Option to hold to buy or sell property expires

• The owner dies

• The individual leaves Canada

• There is a change in use of the capital property

 

Capital Gains Versus Business Income for Real Estate

The Canada Revenue Agency has an income tax bulletin (IT-218R) explaining some factors that go into consideration when determining if a gain on the sale of real estate should be considered business income, property income or capital gain.  There is no provision in the Income Tax Act which describes the gains from the sale of real estate are to be either capital or income in nature.  Some areas that the CRA looks at to determine with it is capital gains or business includes, but is not limited to, the intention of the tax payer, the feasibility of the intention, the profession of the taxpayer and the length of time through which the real estate was held by the tax payer. Each case is specific and these factors are not exclusive of other factors.  If you have further questions on the sale of real estate, please feel free to make an appointment with us.